How do you prevent 5 Shades of Grey from killing your efficiency and sometimes your profit?
In my 20 years of working with dozens of manufacturers, I have witnessed a frequent battle between Operations and Marketing. Finance often allies with Operations and Sales supports Marketing; all while the CEO usually gives the final word.
The battle has begun: How many SKUs is too many? How many is not enough?
Whether it’s the food plant, lamp manufacturer, or toy maker, how many shades of grey you actually need to satisfy every taste and capture every customer is debatable. Growing product lines create a logistical yet operational nightmare if not properly planned or controlled.
Every additional SKU requires an extensive upfront set up: mold making, parts ordered, equipment calibrated, and trial runs. These are only a few of the contributing factors; the list continues. Not to mention production interruption from excessive changeovers that results in schedule delays and increased cost. Hidden costs tend to be under captured, overlooked, or underestimated when it comes to new product launch.
However, “The RIGHT customer is always right” trumps all. It’s not easy to balance efficiency and customer satisfaction. In the name of customer satisfaction, desire to increase market share or simply keeping current customers, companies accepted the fact that introducing new product is an unavoidable business expense. Marketing and Sales have no easy task. They have to predict economic trends and customer desires, while outperforming the competition.
Nevertheless, there are ways to minimize the impact of introducing new SKUs on efficiency:
1. Product Mix Production Optimization Process
To minimize negative impact on production ask yourself: how, when, how much, and what to produce. These simple questions have been implemented in many companies and always provide important information.
2. ABCD Inventory Analysis
This is a comprehensive study of inventory turnover to determine production runs, MOQ, and product line reviews.
3. Insourcing vs. Outsourcing
Can a third party produce the new product for market test faster and cheaper than you so you can continue to focus on your core competency?
4. Minimize Downtime
Review internal factors such as operational improvement to minimize changeover downtime and external factors like customers purchasing habits. Suggest slight alteration that can benefit both parties.
5. “Teamwork Makes the Dream Work”
Sales will always make the challenging promises to get the business and Operations will always have to deliver. Without Sales there is no need for Operations. Making excuses and accusations result in zero outcome; save your energy and tackle the issue as a team. You’ll have a better chance of winning.
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